S&U progresses on solid collection rates

Like so much else within the broader automotive sector, modes of motor financing appear to be realigning in response to evolving consumer trends. Earlier this year, Stellantis (US:STLA), the holding company for Fiat, Peugeot, and Citroën, took steps to expand the financing and leasing aspects of its business. Curiously, the move came as the number of new car buyers who financed their car through dealer-sourced finance appears to be trailing away, while the gradual shift in favour of electric vehicle sales is precipitating changes in the way that new cars are financed.

None of this appears to have had a detrimental impact on S&U’s (SUS) financing activities. The car and bridging loan lender saw a 13 per cent increase in net receivables to £417mn, aided by efficient collections and debt quality at both its Aspen Bridging and Advantage Finance arms. This was borne out by first-half performance at Aspen, where repayments and recoveries hit a record £66.8mn, while Advantage's finance acceptance rate of 31 per cent points to prudent underwriting and affordability checks at a time of rising interest rates and increased delinquency risk.

The lender has not been immune to wider economic trends and reported earnings were constrained by a sizeable rise in half-year finance costs for Advantage. Nonetheless, average customer credit scores rose through the period and an overall collection rate of 94.1 per cent was in line with the HY2022 comparator.

The interim numbers suggest that S&U continues to pursue its growth ambitions within a prudential framework. With the shares trading at nine times forecast earnings with an implied dividend yield of 6 per cent, we remain buyers. Buy.  

Last IC View: Buy, 2,375p, 28 Mar 2023